This paper investigates the link between the perceived inflation risks in macro-economic forecasts and the inflation … risk premia embodied in financial instruments. We first provide some stylized facts about the term structure of inflation … compensation, inflation expectations and inflation risk premia in the euro area bond market. Latent factor models like ours fit …

We use a joint model of macroeconomic and term structure dynamics to estimate inflation risk premia in the United … inflation and interest rate expectations at various future horizons, as well as term structure data from both nominal and index …-linked bonds. Our results show that, in both currency areas, inflation risk premia are relatively small, positive, and increasing …

equilibrium interest rate (r*), trend inflation (π*), and term premia. Similar to Bauer and Rudebusch (2020, AER), π* and r …

, premium components are less reactive to a typical 10 bp increase in inflation, while real rate responses change their sign …

consumption and inflation relatively well. To improve our understanding of these results, we derive analytical solutions for …

variables: the dividend yield, two factors driving the one-period real interest rate and the rate of inflation. The model …